A Solid Partnership Agreement Can Prevent Disputes

partnership agreement, business partners, Naperville Business LawyerGoing into business with a partner can be fun, exhilarating, and very profitable. However, going into business with a partner unprepared can be stressful, contentious, and financially devastating. Like many of my clients who have considered establishing a partnership, you may have questions about how to avoid partnership disputes and give your company the best chance for success. A comprehensive partnership agreement is the cornerstone of any good business relationship, so it is very important to understand what an effective agreement should address.

Although not limited to a partnership, the first step toward success is a business plan that takes into account the nature of your chosen industry and the impact your company is expected to have. Once you have a business plan structured, you and your prospective partners must negotiate a partnership agreement that balances the company’s needs with the contributions of each person. A strong partnership agreement can address a wide variety of business concerns, but at the very minimum, should include several key considerations.

Decision-Making Processes and Authority

Your business will be faced with a number of decisions to be made, some of them relatively small, others vital to the survival of the company. A partnership should establish how decisions will be made, and absent a consensus, which partner or partners will have the authority to act on behalf of the business. A company without a decision-making process in place may find itself paralyzed and unable to grow.

Funding

A partnership agreement should clearly delineate which partners are financially investing in the company, and to what extent. Many partnerships include silent partners who mainly provide capital, while managing partners see to the daily activities of the business. If your company will structured in such a manner, your partnership agreement should reflect the partners’ arrangements and designated responsibilities.

Distribution of Profit

Prospective partners should also discuss how money is taken out of the company, either in the form of salaries or distributed dividends. This may require significant consideration of the ultimate vision of the business and the extent of expected growth. One partner may wish to retain more earnings to reinvest in the company’s future, while others may want to realize a more immediate return. Additionally, it is important for investing partners to clearly understand when they can expect to recover their initial and/or subsequent capital investments.

Dissolving the Partnership

It may seem counter-intuitive to discuss the end of a partnership before it even begins, but doing so can prevent future problems. There may come a time when one or more partners are ready to move on, and having a mechanism in place to address such a situation is vital. Your partnership agreement can include buyout clauses and other exit strategies negotiated while the relationship between partners is at its strongest and the best interest of the business is everyone’s highest priority. You should also consider contingencies such as the death or disability of a partner, and the impact it may have on the company.

Legal Guidance

Perhaps the most important step in negotiating a partnership agreement is seeking the help of a qualified business lawyer. A skilled legal professional like Denice Gierach can assist you and your partners as you develop your company’s blueprint for success. Contact an experienced Naperville business law attorney today and put our experience to work for you.